Cho High Court Decision 201Do1564 ( December 28, 2011)

not falling under the largest shareholder, etc. and must be excluded from the evaluation of evidence;

The heir is the heir of the decedent who was the largest shareholder, but did not fall under the largest shareholder, etc., and succeeded to shares from the decedent, but the shares still do not fall under the largest shareholder, etc., so the heir should be excluded from the subject of verification evaluation

2011Revocation of disposition of revocation of imposition of inheritance tax, etc.

Park XX et al.

Head of the District Tax Office

August 30, 2011

November 16, 2012

1. On February 1, 201, the Defendant revoked the disposition imposing inheritance tax of KRW 000 (Plaintiff Parkba 000, Plaintiff Parkba 000, and each of Plaintiff leB, Prostitution, and leD) on the Plaintiffs on February 1, 201.

2. The costs of the lawsuit are assessed against the defendant.

The same shall apply to the order.

1. Details of the disposition;

A. On April 25, 2008, the Plaintiffs inherited 1,501,881 shares of the deceased MPP industry Co., Ltd. (hereinafter referred to as the “PPP”) (hereinafter referred to as the “instant shares”) due to the death of the deceased, and assessed the said shares as KRW 000 (00 per share) and reported inheritance tax to the Defendant.

B. The Chairman of the Board of Audit and Inspection requested the Seoul Regional Tax Office to audit the operational status of the Seoul Regional Tax Office to correct that the instant shares constitute shares included in the largest shareholder group of XX u. 20% increase and impose tax.

C. On February 1, 2011, the Defendant issued a correction and notification of the inheritance tax of 000 won (Plaintiff Parkba 000 won, Plaintiff ParkB, Prostitution, and leD respectively) to the Plaintiffs on February 1, 201 (hereinafter “instant disposition”).

D. The Plaintiffs were dissatisfied with the instant disposition and filed a petition for a trial with the Tax Tribunal on April 12, 201, but the Tax Tribunal did not make a decision on the said claim by the date of closing the argument of the instant case (the said claim was dismissed on December 28, 201, which was after the date of closing the argument of the instant case).

E. Meanwhile, at the time of commencing the inheritance of the instant shares, Kim GG, the largest shareholder of KimF, his relative of KimF, 1.82%, and 1.42% of the total of 30.95% of the 30.95% of the shares, and the decedent retired on March 20, 2007.

[Ground of recognition] Facts without dispute, Gap evidence 1, 2, Eul evidence 1, the purport of the whole pleadings

2. Whether the instant disposition is lawful

A. The plaintiffs' assertion

1) The decedent is not included in 'large shareholder, etc.' because he/she is not in a direct employment relationship with the largest shareholder of XX.

2) Even if the largest shareholder can be deemed an employee of a corporation whose largest shareholder controlled by investment, as long as the decedent already resigned from the position of officer of XXP, he/she does not constitute the largest shareholder.

3) As long as the plaintiffs, who did not belong to the largest shareholder, etc., do not belong to the largest shareholder, etc. after succeeding the shares of this case from the decedent, the shares of this case are subject to exclusion of premium increase.

B. Relevant statutes

It is as shown in the attached Form.

C. Determination

1) Determination on the first argument

Article 63(3) of the former Inheritance Tax and Gift Tax Act (amended by Act No. 9269 of Dec. 26, 2008; hereinafter "the Inheritance Tax and Gift Tax Act") provides that in the application of the provisions of paragraphs (1) 1 and (2), 20/100 (10/100 in the case of a small or medium enterprise) shall be added to the shares of the largest shareholder or largest investor as prescribed by the Presidential Decree, and the shareholders or investors specially related to such shareholder (hereinafter "large shareholder, etc."), but 30/10 (15/100 in the case of a small or medium enterprise) shall be added to the shares issued by the largest shareholder, etc. and the former Enforcement Decree of the Inheritance Tax and Gift Tax Act (amended by Presidential Decree No. 21292 of Feb. 4, 2009; hereinafter referred to as "large shareholder, etc."), one of the shareholders and other specially related shareholders under Article 53(1)1 and (2) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act.

Article 13(9)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "an employee prescribed by Ordinance of the Ministry of Strategy and Finance (including an employee of a corporation under control by investment; hereinafter the same shall apply)" shall be deemed "an employee (including an employee of a corporation under control by investment; hereinafter the same shall apply) who has a special relationship with a contributor in determining the scope of non-taxation in the taxable amount of taxable amount of taxable amount of taxable amount of taxable amount of taxable amount of the property contributed by a public-service corporation under Article 16(2)2 of the Inheritance Tax and Gift Tax Act" (Article 13(9)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "an employee (including an employee of a corporation under control by investment; hereinafter the same shall apply in this subparagraph and Article 19(2)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act)" (Article 19(2)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, other than an employee and an employee, who maintains his livelihood with the property

Meanwhile, Article 13 (11) 1 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that "a corporation controlled by investment" under Article 13 (9) 2 of the same Act refers to a corporation falling under Article 19 (2) 6 of the same Act, and Article 19 (2) 6 of the same Act provides that "one shareholder, etc. and a person falling under subparagraphs 1 through 5 shall invest more than 30/100 of the total number of outstanding stocks, etc."

In full view of the language and text of the above provisions and the circumstances leading up to the amendment under Article 13(9)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, “employee” under Articles 53(3) and 19(2)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act includes “employee of a corporation controlled by investment” under the same concept as “employee of a corporation under Article 13(9)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, and therefore, an employee of a company in which the largest shareholder, etc. invests more than 30% (see Supreme Court Decision 2011Du6899, Oct. 11, 2012) shall be deemed as including an employee of a company in which the largest shareholder, etc. invests more than 30% (see Supreme Court Decision 2011Du6899, Oct. 11, 2012).

2) Determination on the second argument

Article 13(7) of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provides that “The executives are executives under Article 43(6) of the Enforcement Decree of the Corporate Tax Act and those who were executives thereof for whom five years have not passed after retirement; hereinafter the same shall apply.” Article 4 of the former Enforcement Rule of the Inheritance Tax and Gift Tax Act (amended by Ordinance of the Ministry of Strategy and Finance No. 20, Apr. 30, 2008) provides that the executives are employees. However, as seen earlier, on March 20, 2007, the decedent retired from the XX P P P P P PP, which was the commencement date of inheritance of the instant shares, is obviously apparent that the decedent had not been more than five years since April 25, 2008, and thus, the decedent is still employees of the largest shareholder. Therefore, the Plaintiff’s above assertion

3) Judgment on the third argument

The proviso of Article 63(3) of the Inheritance Tax and Gift Tax Act and Article 53(5)6 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provide that "where a person other than the largest shareholder, etc. does not fall under the largest shareholder, etc. by inheritance, the person other than the largest shareholder, etc." shall be excluded from the evaluation of increase in the number of shares. Unlike the largest shareholder who controls the company, the largest shareholder, etc. under the provisions of each subparagraph of Article 19(2) of the Inheritance Tax and Gift Tax Act is in a special relationship with the largest shareholder based on his/her status. Therefore, the largest shareholder, etc. may have a management right premium due to his/her status. However, the shares held by the largest shareholder, etc. shall be excluded from the evaluation of increase in the number of shares.

However, only the heir of the inheritee, who was the largest shareholder, etc., did not fall under the largest shareholder, etc. in this case, and even though they succeeded to the shares of this case from the inheritee, their shares still do not fall under the largest shareholder, etc. Therefore, the Plaintiffs are subject to the proviso of Article 63(3) of the Inheritance Tax and Gift Tax Act and Article 53(5)6 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act, and the shares of this case should be excluded from the subject of the premium increase assessment. Thus, the Plaintiff’s above assertion is unlawful,

Article 63(3) of the Inheritance Tax and Gift Tax Act and Articles 53 and 19(2)2 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act provide that "the largest shareholder, etc. who maintains his livelihood with the property of the deceased" shall be "the person other than the largest shareholder, etc.". According to the above provision, the deceased's heir who is the deceased does not fall under "the largest shareholder, etc." but does not fall under "the largest shareholder, etc.". Thus, the deceased's heir shall not be deemed to fall under "the largest shareholder, etc." regardless of whether the plaintiffs maintain their livelihood with the property of the deceased. The defendant's argument is not accepted [the defendant shall be taxed on the property of the deceased, etc. of the deceased, and the inheritance tax cannot be imposed only on the deceased's heir, and the value of the shares inherited from the deceased's heir cannot be evaluated as belonging to the heir's property without consideration under Article 6(3)5 of the Enforcement Decree of the Inheritance Tax and Gift Tax Act."

3. Conclusion

Therefore, the plaintiffs' claim of this case is justified and it is so decided as per Disposition.